As a sole trader the most common form of insurance required is public liability insurance.
This is true for any sole trader, but especially for tradies in Australia.
Whilst most sole traders know they need public liability insurance, many don’t know why they need it, so in this article we’ll take a deep dive into all the details.
If you’re not interested in the details and just need a quote, click the button below. Otherwise, read on…
Why do sole traders need public liability insurance?
Public liability insurance is important for a business operating under any structure, but it could be argued that it’s even more important for sole traders.
As a sole trader, you and your business are legally a single entity. This means that any action taken against your business is taken against you.
Why does this matter? Well say you’re working in someone’s home as a carpenter, and you do something which results in an injury to someone living in the home.
You’ll be responsible for any costs relating to that injury, which could be anywhere from a few hundred dollars through to hundreds of thousands of dollars if it’s very serious.
If you were operating as a Pty Ltd company, it would be that entity that would be liable and potentially dragged through the courts.
Ideally your company would have public liability and everything would be fine, but say you didn’t have insurance and couldn’t cover the cost of the claim, at least your personal assets such as your home couldn’t be pursued.
But as a sole trader your personal assets aren’t separated from your business. So if you didn’t have insurance and couldn’t cover the costs of the claim, you could potentially lose your house or other assets to settle the claim.
The thought that one single mistake could cost you your house should be incredibly scary for any tradie operating as a sole trader.
What does public liability insurance cover?
By now you should have a bit of an idea. Basically it covers you in the event that your business activities result in property damage or personal injury (including death) to a third party.
A third party could include your client or a member of the public, but does not include yourself or your staff.
A minor property damage claim could involve an electrician working in a roof, who accidentally puts their foot through the ceiling.
No one is injured, but the cost of repairing the plaster and painting the ceiling could end up being a couple of thousand dollars.
You might choose to claim this through your insurance, or you might have some mates in the trade who can cover the plaster and painting for less than the cost of the excess.
More serious claims tend to involve personal injury or death.
Let’s use the electrician example again, but in this case instead of putting his foot through the ceiling, he’s left some cables running through the hallway.
An occupant of the house didn’t see the cables, and she’s tripped over them, breaking her wrist and hitting her head in the process.
The electrician will be liable for any medical bills, lost wages and any other damages that may be awarded by a court.
These costs could easily make their way into the tens of thousands, or potentially more depending on the severity of the injuries.
Provided that the electrician is found to have been responsible for the injuries as a result of their negligence, their public liability insurance policy will cover the costs of the claim including the legal expenses.
How much is public liability insurance for a sole trader?
There are two main factors that affect the cost of public liability insurance. These are the size of the business and the activities of the business.
When it comes to size, as a sole trader you’re typically a one-person operation, which puts you at the lowest end of the scale when looking at cost.
Then it’s the business activities to be considered, and how much risk is involved.
If you’re a sole trader carpenter working only on residential projects, the risk will be considered to be quite low and therefore the cost will be quite low.
In this case we’d be talking well under $1,000 per year for $5 million cover, which is very cost effective.
If you’re a sole trader, but you’re undertaking electrical work in a substation on a mine site, the risk is considerably higher and therefore the cost will be considerably higher.
Some insurance companies will rate the size of your business based on the number of staff, whilst others will base it on your annual revenue.
For those that rate on revenue, keep in mind that the public liability insurance cost won’t change too much for any amount of revenue below $150,000 per year.
So whether your annual revenue is $75k or $125k, you probably won’t notice much difference in premium, if any.
Can I get public liability insurance as a sole trader?
You don’t need to be a registered company to have public liability insurance, so yes, sole trader can have public liability insurance.
In fact, public liability insurance is arguably more important for a sole trader than any other business type.
How do I insure myself as a sole trader?
As a sole trader your public liability insurance will be held under your personal name, with the option to add your business name.
The insurance itself is really no different irrespective of whether you’re a sole trader or company, but it is vital to ensure that the insured name on the policy is correct.
Any errors in the insured name have the potential to cause issues at claim time.
A good broker will generally take the time to search your ABN, which will help to ensure the correct entity name is being used.
Does a sole trader need an ABN to hold public liability insurance?
The insurance companies don’t have specific rules that require a sole trader to hold an ABN.
There are certainly reasons why a sole trader should hold an ABN, but it doesn’t specifically relate to insurance.
For more information check out our article on does a sole trader need an ABN.
Does Trade Risk deal with sole traders?
Although we deal with plenty of larger trade and building companies, sole traders are still our bread and butter.
In our early days we helped thousands of sole traders, and in the decade that has passed we still help plenty of them with their public liability and other forms of business insurance.
The beauty of Trade Risk is that we can help you whilst you’re a sole trader, and can continue to help you as your business grows and evolves.
Whether your sole trader business becomes a partnership, a Pty Ltd company or a family trust, we can adjust your policies as needed to keep pace with your business.
To take the next step in insuring your sole trader business, please call our team on 1800 808 800 or click here to request an online quote.
